Method and apparatus for fully insuring large bank deposits

ABSTRACT

An Interbank Deposit Placement System (IDPS) that allows banks participating in the service to offer their customers multiple deposits so that potential deposit (fund) amounts exceeding an applicable Federal deposit insurance limit (e.g., $100,000) are fully insured. The IDPS partitions each of the potential deposit amounts into a plurality of deposit portions that do not exceed the Federal deposit insurance limit. In one embodiment, a proposed list of banks to which the deposit portions are allocated is presented to a recipient (e.g., bank representative, depositor) who is offered the option of modifying the proposed list during an established time window. After the time window expires, a deposit is established on behalf of each bank on the list to which the specific deposit portion was allocated by the processor.

CROSS-REFERENCE TO RELATED APPLICATIONS

[0001] This application is a continuation-in-part of U.S. patentapplication Ser. No. 10/124,462, filed Apr. 17, 2002, entitled “Methodand Apparatus for Fully Insuring Large Bank Deposits,” which isincorporated herein by reference in its entirety.

[0002] This application claims the benefit of U.S. ProvisionalApplication No. 60/307,815, filed Jul. 27, 2001, entitled “Method andApparatus for Providing an Insured Return on a Bank Deposit,” and U.S.Provisional Application No. 60/323,365, filed Sep. 20, 2001, entitled“Method and Apparatus for Allowing Individual Banks to ProvideGovernment-Backed Insurance on Large Deposit Amounts.”

BACKGROUND OF THE INVENTION

[0003] In many banking systems throughout the world, bank deposits ofindividual depositors are insured by government-run deposit insuranceprograms up to an established deposit insurance limit. In the UnitedStates, for example, the current deposit insurance limit is generally$100,000 per individual account per depositor in any one bank. A similarinsurance limit for credit union accounts is also in effect for depositsin U.S. credit unions.

[0004] Depositors wishing to have government-backed insured funds onlarge bank deposits in excess of the established insurance limit havelimited options. A depositor can choose to open multiple accounts inseparate banks, each account being maintained at an amount up to theestablished insurance limit. This process is time-consuming andadministratively cumbersome. Alternatively, a depositor can place alarge deposit in an amount that is a multiple of the establishedinsurance limit through a banking company having a number of affiliatedbanks to which portions of the large amount may be transmitted fordeposit. In the United States, such multi-account deposit services arecurrently offered by only a few financial institutions, such asCitigroup Inc., Merrill Lynch & Co., Inc. and Fishback FinancialCorporation. Thus, competition is limited and, for the vast majority ofdepositors, there is no opportunity to obtain such a service from alocal community bank. Additionally, a depositor (or the bank at whichthe deposit is to be placed) can purchase deposit insurance from aprivate insurance company. But such insurance can be expensive andraises concern as to whether the private insurance company is able tosatisfy its obligations in the event of a banking system failure. Inaddition, deposit brokers may be used to distribute a depositor's fundsamong multiple banks, each of which could offer protection up to theestablished deposit insurance limit. This alternative usually requiresbanks to pay the highest rates available throughout the country, andusually requires depositors to establish relationships with unknowninstitutions.

[0005] The growth of bank core deposits has failed to keep pace withloan and asset growth, particularly in community banks. As a result,banks have turned to alternative funding sources, such as Federal HomeLoan Bank (FHLB) advances, wholesale funding and brokered deposits.These alternative funding sources are both more expensive and volatilethan traditional core deposits, causing the net interest margins of thebanks to be reduced and subjecting the banks to increased risk.

[0006] While the relative amount of insured bank deposits has declinedover the past four decades (in comparison to loan growth), the demandfor large denomination risk-free investment products has remainedstrong. What is needed is a method and apparatus for processing largedeposits to help banks attract new depositors looking to invest largeamounts of funds in an investment vehicle eligible for full depositinsurance coverage.

BRIEF SUMMARY OF THE INVENTION

[0007] The present invention establishes an Interbank Deposit Servicethat allows a bank to offer multiple bank deposits to its customers inorder to achieve deposit insurance in aggregate amounts greater than theamount any individual bank could offer (i.e., the established depositinsurance limit). The banks whose deposits are offered through theInterbank Deposit Service are normally unaffiliated with one another.Each of the deposits may be a certificate of deposit (CD).

[0008] The banks are federally insured financial institutions that areapproved to participate in an Interbank Deposit Placement System (IDPS)that provides the Interbank Deposit Services.

[0009] In a preferred embodiment of the present invention, a potentialdeposit amount that exceeds an established deposit insurance limit isprocessed using a computer-implemented method so that the total amountto be deposited is fully insured. The order to process the potentialdeposit amount is submitted to the Processor, which establishes multipledeposits, each with a different bank, for the customer seeking todeposit the potential deposit amount. Each deposit has a predeterminedmaturity. The Processor receives multiple orders submitted by banks toprocess the potential deposit amounts. The Processor allocates thepotential deposit amounts to deposits at multiple banks so that nodeposit exceeds the established deposit insurance limit. Through theProcessor, a deposit is established for the depositor at the bank towhich a portion of the depositor's funds was allocated as a deposit bythe Processor.

[0010] Each bank submitting an order to process potential depositamounts to the Processor agrees to accept from the Processor anaggregate amount of deposits equal to the potential amount submitted tothe Processor.

[0011] Each bank submitting an order to process potential depositamounts to the Processor may specify a deposit interest rate. TheProcessor may compare the specified deposit interest rate to an interestrate determined by the Processor based on the specified rates submittedby all banks to the Processor (i.e., ERate) participating in anallocation.

[0012] The ERate determined by the Processor for a given allocation ofpotential deposit amounts may be based on a volume weighted average ratespecified for potential deposit amounts with the same maturity.

[0013] The Processor may calculate the amount of a payment to be made toor received by banks participating in the allocation to compensate fordifferences between the deposit interest rate specified by a bank andthe ERate determined by the Processor.

[0014] The amount of each deposit may be within the established depositinsurance limit. The Processor may initiate the process of forwardingthe payment to the depositor or the depositor's banks or crediting thepayment to an account thereof each time that interest earned on theassociated deposit is paid at the option of the depositor or to ensurethat the amount of the deposit does not exceed the established insurancelimit.

[0015] The Processor may prioritize the orders based on the type ofdeposit established at the banks, the size of each of the potentialdeposit amounts, the interest rates specified by the banks, thegeographical location of the banks, the preferences indicated by thedepositors, the preferences indicated by the banks, the ability of thebanks to establish a fully insured deposit for a Lending Bank, or theavailability of funds from a Lending Bank (which in turn may depend onthe asset size or the credit rating of the bank at which the LendingBank is to make a deposit).

[0016] The established deposit insurance limit may be in accordance withU.S. law, regulations and rules established by the U.S. Federal DepositInsurance Corporation (FDIC), the National Credit Union Administration(NCUA) or other insurance programs or the laws, regulations and rulesestablished by other jurisdictions.

[0017] In another embodiment of the present invention, a SettlementAccount is established for each of the banks. The Processor receivesmultiple orders to process potential deposit amounts. Each orderincludes the maturity and interest rates of the deposits to beestablished for a specific potential deposit amount. The Processor sortsby maturity the deposits to be established based on the orders. TheProcessor may compare the interest rate specified by each bank for apotential deposit amount of a particular maturity to an ERateestablished by the Processor for that maturity. The Processor allocateseach potential deposit amount to deposits at multiple banks. No depositexceeds the established deposit insurance limit. The Processor allocateseach deposit to a specific one of the banks. Through the Processor, adeposit is established for the depositor at the bank to which a portionof the depositor's potential deposit amount was allocated by theProcessor. Based on the interest rate offered by each bank and the ERatethat the Processor calculates, the Processor credits or debits a RateBridge Payment to the Settlement Account of each bank.

[0018] In response to each order, a proposed list of banks at whichdeposits, resulting from the allocation of the potential deposit amountsare to be placed, is made available to the depositor. The depositor maybe offered the option of modifying the proposed list during anestablished time window. After the time window expires, the Processormay establish a deposit at each bank on the list. Through the Processor,a deposit is established for the depositor by the bank to which aportion of the potential deposit amount was allocated as a deposit bythe Processor. The depositor associated with the deposit is the ultimateowner of the deposit. The deposit may be titled in the name of theProcessor (as subcustodian for the bank that placed the order) and/or inthe name of the bank that placed the order (as custodian for thedepositor).

BRIEF DESCRIPTION OF THE SEVERAL VIEWS OF THE DRAWING

[0019] The following detailed description of preferred embodiments ofthe invention will be better understood when read in conjunction withthe appended drawings. For the purpose of illustrating the invention,there are shown in the drawings embodiments that are presentlypreferred. It should be understood, however, that the invention is notlimited to the precise arrangements and instrumentalities shown.

[0020] In the drawings:

[0021]FIG. 1 is a simplified block diagram of an Interbank DepositPlacement System that processes potential deposit amounts for multiplebanks in accordance with a preferred embodiment of the presentinvention;

[0022]FIG. 2 is a block diagram illustrating an order review feature ofthe Interbank Deposit Placement System of FIG. 1;

[0023]FIG. 3 is a block diagram showing the Interbank Deposit PlacementSystem with a settlement table for implementing the distribution ofdeposits and compensating for deposit mismatches among multipleRelationship Banks in accordance with one embodiment of the presentinvention;

[0024]FIG. 4 is a block diagram showing how deposit mismatches amongmultiple Relationship Banks are compensated for in accordance with oneembodiment of the present invention;

[0025]FIG. 5A is a block diagram illustrating the allocation of apotential deposit amount among multiple deposits, each established by adifferent bank in the name of the subcustodian of custodian for thedepositor.

[0026]FIG. 5B is a block diagram illustrating the establishment ofdeposits by a single bank, each in exchange for a portion of a potentialdeposit amount received from multiple banks.

[0027]FIGS. 6 and 7 are block diagrams that illustrate the placementprocesses used by the Interbank Deposit Placement System in accordancewith a preferred embodiment of the present invention; and

[0028]FIGS. 8A and 8B, taken together, is a high-level functionalflowchart of processes used by the Interbank Deposit Placement System ofFIG. 1 to process potential deposit amounts in accordance with apreferred embodiment of the present invention.

DETAILED DESCRIPTION OF THE INVENTION

[0029] 1. Definitions

[0030] “Bank” generally refers broadly to a financial institution thatoffers deposits that are insured up to an established deposit insurancelimit. The term “bank” can include, but is not limited to, banks,thrifts, credit unions, savings & loans, industrial loan companies andother depository institutions that can provide deposits guaranteed bygovernment-backed deposit insurance. A bank may be a member of theInterbank Deposit Service.

[0031] “Custodian” refers to a Relationship Bank that acts as acustodian for depositors with respect to deposits established throughthe Interbank Deposit Service.

[0032] “Deposit” refers to an agreement between a depositor and bankpursuant to which the bank promises to pay the depositor a particularrate of return (e.g., a fixed or variable interest rate) for allowingthe bank to hold and use funds received from the depositor. The term“deposit” includes, but is not limited to, time deposits (CDs) andnon-time demand deposits. Without limiting the foregoing, deposits maybe in uncertificated form or certificated form.

[0033] “Deposit mismatch” refers to an imbalance when a bank (asRelationship Bank) places orders with the Interbank Deposit PlacementSystem to process potential deposit amounts made available by depositorsand the bank (as Receiving Bank) is not allocated an equivalent dollaramount of portions of deposits by the Interbank Deposit Placement Systemin return for the orders.

[0034] “Deposit Placement Failure” refers to an occurrence when thereare not enough banks at which the Interbank Deposit Placement System canestablish deposits in order to ensure full insurance coverage for allpotential deposit amounts. This generally results from a bank submittingto the Interbank Deposit Service a very large potential deposit amount.

[0035] “Deposit portion” or “tranche” refers to a portion of a potentialdeposit amount, the amount of which does not exceed the establisheddeposit insurance limit.

[0036] “Depositor Agreement” refers to a legal agreement between aRelationship Bank and a depositor that authorizes the Relationship Bankto place orders for potential deposit amounts with the IDPS.

[0037] “ERate” refers to an earnings (i.e., interest) rate that may beused in the determination of an interest plug amount or present valuepayment. The ERate could be the weighted average for a particularmaturity of the interest rates of all orders received for a particularPlacement Date for a particular product or it could be set to anestablished rate such as LIBOR.

[0038] “Established deposit insurance limit” refers to the extent towhich a government or other entity insures a deposit or deposits of onecustomer (depositor) in one bank. As an example, the established depositinsurance limit can be in accordance with U.S. law, regulations andrules established by the U.S. Federal Deposit Insurance Corporation(FDIC) or the National Credit Union Administration (NCUA).

[0039] “ƒ” refers to an amount of funds that does not exceed theestablished deposit insurance limit for a deposit. (For example, withrespect to a CD, “ƒ” is equal to a principal amount of funds that,together with any accrued interest over the term of the CD, does notexceed the established deposit insurance limit).

[0040] “Interbank Deposit Placement System” (IDPS) refers to a systemthat provides an Interbank Deposit Service whereby orders pertaining topotential deposit amounts that are available to banks which are membersof the Interbank Deposit Service are submitted to the Processor forallocation among deposits at multiple banks in accordance with one ormore algorithms.

[0041] “Interest plug” refers to a particular type of present valuepayment made to or received from a bank to compensate for differencesamong deposit terms offered by other member banks.

[0042] “Interest rate” refers to the annualized rate of return, whichmay be fixed and/or variable, that a bank pays a customer in exchangefor the customer's funds being held at the bank. Interest rate also maybe expressed as a spread above or below some agreed upon rate (e.g.,T-Notes, LIBOR, or federal funds rate) or it may consist of someearnings rate.

[0043] “Issuing Agent” refers to an entity that issues deposits as agentfor a Receiving Bank or Surplus Bank. An issuing agent may be theProcessor.

[0044] “Lending Bank” refers to the entity (which may be one of many andwhich may be a bank) that agrees to place additional deposits into theInterbank Deposit Placement System to resolve deposit mismatchsituations.

[0045] “LIBOR” (the London Interbank Offered Rate) refers to aninternational average of offered rates for dollar deposits for a term ofmaturity based on quotes from several major banks. It is used tocalculate the rate at which banks lend funds to creditworthy banks.

[0046] “Municipal CD” refers to a certificate of deposit purchased by astate or local governmental entity.

[0047] “Order” refers to a request inputted by a representative of aRelationship Bank into the Interbank Deposit Placement System to processa potential deposit amount made available by a depositor so thatportions of the potential deposit amount may be allocated to multiplebanks.

[0048] “Participating Bank Agreement” refers to a legal agreementbetween each bank and the Sponsor that establishes the terms forparticipating in the Interbank Deposit Placement System.

[0049] “Placement Date” refers to the date on which the InterbankDeposit Placement System initiates the process by which potentialdeposit amounts are allocated to deposits at multiple banks.

[0050] “Potential deposit amounts” (also referred to herein as “funds”or “fund amounts”) refers to amounts submitted for deposit, the amountof which generally exceeds an established deposit insurance limit.

[0051] “Preferred broker” refers to a broker dealer entity thatfacilitates or creates a secondary market for the purchase and sale ofdeposits established through the Interbank Deposit Service.

[0052] “Present value payment” or “PVP” (also known as a “Rate BridgePayment”) refers to a payment transferred from one bank to another toequalize, for each of the banks, the value of the interest payments overthe term of the deposits established from the potential deposit amountsinput into the Interbank Deposit Placement System with the interestpayments over the term of the deposits that the bank (as Receiving Bank)establishes through the Interbank Deposit Placement System. Orders maybe matched with other orders at the Interbank Deposit Placement Systemthat have different deposit terms and/or principal amounts. Banks mayneed to make/receive a present value payment to ensure that the amounteach bank places in the Interbank Deposit Placement System is equivalentto the amount each bank receives (which thereby means that the termsthat the bank established with its depositor that made the potentialdeposit amount available are effectively reflected by the deposit thatthe bank receives from the Interbank Deposit Placement System). Thepresent value payment is equal to the difference in the future cashflows (of both principal and interest payments) made by each bank,discounted back using the present value rate. The present value paymentsare paid/received by banks on the business day after the Placement Date.

[0053] “Present Value of Future Cash Flow” or “PV of Future Cash Flow”refers to a mathematical adjustment to account for the time value ofmoney for a series of cash flows occurring over a period of time. Thiscalculation is widely known to those skilled in the art.

[0054] “Processor” refers to a component of the Interbank DepositPlacement System that is responsible for allocating potential depositamounts to multiple banks. The Processor also refers to the component ofthe Interbank Deposit Placement System responsible for one or all of thefollowing: maintaining customer account records, maintaining SettlementAccounts, serving as issuing and paying agent on behalf of ReceivingInstitutions with respect to deposits established through the InterbankDeposit Service, and serving as subcustodian for Relationship Banks. Thefunctions of the Processor may be performed by one or more entities.

[0055] “Receiving Bank” refers to a bank that establishes a deposit inaccordance to instructions generated by the Processor.

[0056] “Relationship Bank” refers to a bank to which a potential depositamount is made available by a depositor that places an order with theInterbank Deposit Placement System to process the potential depositamount.

[0057] “Settlement Account” refers to an account established by a bankwith the Processor or other bank through which all fees and cash flowsassociated with deposits established through the Interbank DepositService settle.

[0058] “Settlement Date” refers to the date, usually the day after aPlacement Date, on which the Processor establishes deposits on behalf onbanks.

[0059] “Sponsor” refers to an entity that operates a system to processpotential deposit amounts, which interface may include the Processor.

[0060] “Subcustodian” refers to an entity that acts as the subcustodianfor a custodian (i.e., Relationship Bank) with respect to depositsestablished through the Interbank Deposit Service for the depositor ofthe Relationship Bank. The subcustodian may be the Sponsor or otherentity.

[0061] “Surplus Bank” refers to a bank that has agreed with the IDPS toaccept deposit portion(s) in excess of deposit portion(s) (if any) thatit is seeking to place on a given Placement Date.

[0062] 2. Detailed Description

[0063] The present invention offers an Interbank Deposit Service, whichpermits banks that have entered into an agreement with a Sponsor of aninterface used to arrange for the placement of the funds of a Depositorthat exceed an established deposit insurance limit at other banks thathave entered into a Participating Bank Agreement with a Sponsor. Forexample, a deposit insurance limit was established by the U.S. FederalDeposit Insurance Corporation (FDIC) to insure the funds of a depositorup to $100,000 at a bank.

[0064]FIG. 1 shows a simplified block diagram of an Interbank DepositPlacement System (IDPS) 100 that provides a Sponsor-operated interfaceused to process potential deposit amounts for banks 105, 120, 125 inaccordance with the present invention. Placements of funds through theIDPS 100 are made on a best efforts basis and each bank may be requiredto pay a Sponsor of the IDPS 100 a fee for providing the InterbankDeposit Service. The IDPS 100 does not place a customer's funds at aparticular bank if aggregating the resulting deposit with any otherdeposits placed by the IDPS 100 into that bank on behalf of the customerwould cause the total deposits of the customer at the bank to exceed theestablished deposit insurance limit. Each Relationship Bank will act ascustodian for its customer with respect to deposits established for thecustomer through IDPS 100. A Sponsor of the IDPS 100 may act as theRelationship Bank's subcustodian for the deposits. A Depositor Agreementbetween the bank and the customer will disclose the existence and roleof the IDPS 100, the Relationship Bank's receipt of equivalent depositsthrough the IDPS 100, and the Relationship Bank's payment of a fee tothe Sponsor of the Interbank Deposit Service.

[0065] The Interbank Deposit Service may periodically establish thematurities of multiple deposits instruments that may be offered throughthe IDPS 100. Each Relationship Bank 105, 120, 125 seeking placement ofcustomer funds through the IDPS 100 will establish a rate acceptable toits customer (“Depositor” 115, 130, 135) for deposits in one or moreavailable maturities. Deposits may compound interest daily (or at suchother frequency as may be established) and deposits with shortermaturities may pay interest at maturity. For deposits with longermaturities, the Depositor may select an end of month payment or paymentat maturity and may be able to select additional payment options at alater date. The Depositor's funds will be submitted to the IDPS 100 forplacement at Receiving Banks on the terms agreed to by the Depositor115, 130, 135 and the Depositor's Relationship Banks 105, 120, 125. Whenan order to process a potential deposit amount is placed by RelationshipBank 105, the IDPS 100 allocates the deposit portions to Receiving Banks120 and 125. Receiving Banks 120 and 125 will establish through the IDPS100 a deposit for Depositor 115 (a Depositor of Relationship Bank 105).When an order to process a potential deposit amount is placed byRelationship Bank 120, the IDPS 100 allocates the deposit to ReceivingBank 105. Receiving Bank 105 will establish a deposit for Depositor 130(a Depositor of Relationship Bank 120). When an order to process apotential deposit amount is placed by Relationship Bank 125, the IDPS100 allocates the deposit to Receiving Bank 105. Receiving Bank 105 willestablish a deposit for Depositor 135 (a Depositor of Relationship Bank125).

[0066] As shown in FIG. 2, prior to each placement of customer fundsthrough the IDPS 100, the Relationship Bank 205 associated with theDepositor 210 makes available to the Depositor 210 a proposed list ofReceiving Banks that will establish deposits for Depositor 210. TheDepositor 210 may inform the Relationship Bank 205 of the names ofReceiving Banks at which the Depositor does not want to deposit funds,and in turn, the Relationship Bank provides that information to IDPS100. For example, at a particular time of day (e.g., 2:30 p.m. EasternTime) on the Placement Date, the IDPS 100 provides to the RelationshipBank 205 a list of the proposed Receiving Banks that will issue depositsto Depositor 210, the proposed amounts to be deposited in each suchReceiving Bank, and a list of alternate Receiving Banks. The Depositor210 is offered a time window (e.g., until 3:30 p.m. Eastern Time) toobtain from the Relationship Bank the list of proposed Receiving Banks,whereby the Depositor may then advise the Relationship Bank of the nameor names of any proposed Receiving Banks or proposed alternate ReceivingBanks at which the Depositor 210 does not want its funds placed. TheRelationship Bank advises the IDPS 100 of the Depositor's determinationsregarding any Receiving Bank(s) at which the Depositor 210 does not wantits funds placed.

[0067] The Relationship Bank places the Depositor's funds through theIDPS 100, which in turn allocates the funds to deposits at one or moreReceiving Banks in amounts that do not exceed the established depositinsurance limit. The IDPS 100 may monitor the credit quality of thebanks and may ensure that no funds placed for a Depositor through theIDPS 100 at any one bank exceed the established deposit insurance limit.

[0068]FIG. 3 is a block diagram showing IDPS 100 with a SettlementAccount table 305 for implementing the distribution of potential depositamounts and compensating for deposit mismatches among multipleRelationship Banks 310, 320, 330, 340 in accordance with one embodimentof the present invention. For example, Relationship Bank 310 places anorder with IDPS 100 indicating that its Depositor 315 seeks to place $3ƒ through IDPS 100 at an interest rate of 4.00% (the interest rateoffered by Relationship Bank 310) for a 52-week CD (or other maturitydesired by the Depositor 315). After processing the order, the IDPS 100acts as an issuing agent for Relationship Banks 320, 330, and 340, andissues three separate deposits each of which is in an amount ($ƒ) thatwith accrued interest will not exceed the established deposit insurancelimit ($ƒ). Each CD issued by IDPS 100 will be issued to the Processoras subcustodian for Relationship Bank 310. Settlement Account table 305is used to track the transfer of funds and is adjusted (through the RateBridge Payment calculation) for differences in the interest ratesoffered by each of the Relationship Banks 320, 330 and 340 when comparedto the interest rate (ERate) determined by the IDPS 100.

[0069] Present Value Payments (PVPs) are credited or debited to and fromthe Settlement Accounts of each bank. For example, if the ERatedetermined by the IDPS 100 is 4.50% and Bank 310, for which multipledeposits having a 52-week maturity are established, offers an interestrate of 4.00%, the Settlement Account of Bank 310 will be updated toreflect the Rate Bridge Payment. The Depositor Agreements will disclosethe possible payment and/or receipt of a PVP by banks arising fromreciprocal deposits through the Interbank Placement Service.

[0070] The Processor may calculate the amount of a payment to compensatefor differences between the offered deposit interest rate and the ERatedetermined by the Processor.

[0071] The amount of the payment may be determined based on:

[0072] (1) the ERate determined by the Processor;

[0073] (2) the offered deposit interest rate;

[0074] (3) the amount of the specific deposit portion;

[0075] (4) a number of times during a predetermined time period thatearnings on the specific deposit portion are to be compounded;

[0076] (5) a number of times that the predetermined time period is tooccur;

[0077] (6) a payout frequency of earnings on the specific depositportion; and

[0078] (7) an established discount rate.

[0079] The established discount rate may be the applicable LondonInterbank Offered Rate (LIBOR) or a derivative thereof.

[0080]FIG. 4 is a block diagram showing how deposit mismatches amongmultiple Relationship Banks are compensated in FIG. 4 according to oneembodiment of the present invention. Although FIG. 4 depicts funds asflowing from the bank to IDPS 410, and vice versa, it should beunderstood that, in a preferred embodiment, all such fund transfers maybe implemented by crediting or debiting Settlements Accounts 416established for each of the Relationship Banks.

[0081] On a date specified by the Sponsor of the IDPS 410 (the“Placement Date”), the Processor 412 in the IDPS 410 will compare theorders placed by each Relationship Bank 420, 430, 440, 450 submittingorders to process potential deposit amounts and sort the orders based onthe maturities of the deposits being sought by the Depositors. Theorders submitted for processing by each Relationship Bank 420, 430, 440,450 on a particular Placement Date will first be allocated for depositsat other Relationship Banks submitting funds to the IDPS 410 forplacement in deposits of the same maturity. If all of the orderssubmitted by Relationship Banks to the IDPS 410 cannot be processed on aparticular Placement Date, the IDPS 410 will either inform theRelationship Bank that potential deposit amounts cannot be placed or, inthe alternative, place the excess funds as described below.

[0082]FIG. 4 shows an example in a system 400 where a “mismatch” occursand Relationship Banks 420, 430, 440, 450, are “made whole” through theaddition of deposits from a Lending Bank. Under the assumption that alldeposit terms offered by each of the Relationship Banks 420, 430, 440,450, are the same, no present value payments are transferred.

[0083] Relationship Bank 420 receives a potential deposit amount of $2 ƒfrom customer 455. Relationship Bank 420 inputs an order into IDPS 410to process a $2 ƒ potential deposit amount.

[0084] Relationship Bank 430 receives a potential deposit amount of $3 ƒfrom customer 460, and a potential deposit amount of $2 ƒ from customer465. Relationship Bank 430 inputs orders into IDPS 410 to processpotential deposit amounts totaling $5 ƒ.

[0085] Relationship Bank 440 receives a potential deposit amount of $2 ƒfrom customer 470, and a potential deposit amount of $ƒ from customer475. Relationship Bank 440 inputs orders into IDPS 410 to processpotential deposit amounts totaling $3 ƒ.

[0086] Relationship Bank 450 receives a potential deposit amount of $2 ƒfrom customer 480. Relationship Bank 450 inputs an order into IDPS 410to process a $2 ƒ potential deposit amount.

[0087] Relationship Bank 420 receives from IDPS 410 via path 490, twodeposit portions each valued at $2 ƒ and associated with potentialdeposit amounts placed by customers 460 and 475. Since Relationship Bank420 received a total value of deposit portions equivalent to the valueof orders it input into IDPS 410, the Relationship Bank 420 is “madewhole.”

[0088] Relationship Bank 430 receives from IDPS 410 via path 492, threedeposit portions each valued at $ƒ and associated with potential depositamounts placed by customers 455, 470 and 480. Since Relationship Bank430 only received $3 ƒ of deposit portions and the value of orders itinput into IDPS 410 was $5 ƒ, a “mismatch” 498 occurs. Due to “mismatch”498, the Relationship Bank 430 is not “made whole” and thus anadditional $2 ƒ of funds is deposited into Relationship Bank 430 byLending Bank 495 through IDPS 410.

[0089] Relationship Bank 440 receives from IDPS 410 via path 494, threedeposit portions each valued at $ƒ and associated with potential depositamounts placed by customers 455, 465 and 480. Since Relationship Bank440 received a total value of deposit portions equivalent to the valueof orders it input into IDPS 410, the Relationship Bank 440 is “madewhole.”

[0090] Relationship Bank 450 receives from IDPS 410 via path 496, twodeposit portions each valued at $ƒ and associated with potential depositamounts placed by customers 460 and 470. Since Relationship Bank 450received a total value of deposit portions equivalent to the value oforders it input into IDPS 410, the Relationship Bank 450 is “madewhole.”

[0091] For each specific Relationship Bank 420, 430, 440, 450, the IDPS410 allocates at least some of the deposit portions so as to minimize oreliminate the difference between the total amount of potential depositamounts for which the specific Relationship Bank 420, 430, 440, 450placed orders into the IDPS 410 and the total amount of deposit portionsallocated to the specific Relationship Bank 420, 430, 440, 450 by theIDPS 410. The amount of each specific deposit portion is no greater thanthe established deposit insurance limit.

[0092] If the total amount of deposit portions allocated to the specificRelationship Bank 420, 430, 440, 450 is less than the total amount ofpotential deposit amounts for which the specific Relationship Bank 420,430, 440, 450 placed orders into the IDPS 410, the IDPS 410 calculatesan amount of additional funds to be deposited by the Lending Bank intothe specific Relationship Bank 420, 430, 440, 450 and directs themovement of such additional funds to the specific Relationship Bank 420,430, 440, 450 so that the difference is minimized or eliminated.

[0093] For Surplus Bank 497, IDPS 410 in transaction 499 assigns toSurplus Bank deposit portions associated with potential deposit amountsplaced by customers 460, 465, totaling $2 ƒ. In some cases on aPlacement Date, a bank may elect to be only a Receiving Bank, in thiscapacity a Surplus Bank. The IDPS 100 may have profits or losses inconnection with placement of potential deposit amounts at Surplus Banks.

[0094] Each bank accepting deposits through the IDPS 410 (in thiscapacity, a “Receiving Bank”) on the day following a Placement Date (the“Settlement Date”) will issue to the Sponsor, as subcustodian for theRelationship Bank, one or more deposits, each in an amount not to exceedthe established deposit insurance limit on the terms established for thedeposits by the Relationship Bank and its Depositor. On each PlacementDate, a bank that places Depositor funds through the IDPS 410 will beboth a Relationship Bank (with respect to orders it places on behalf ofits depositors) and a Receiving Bank (with respect to deposit portionsit accepts through IDPS 410). On a Placement Date, a Surplus Bank may beboth a Relationship Bank and a Receiving Bank or only a Receiving Bank.

[0095]FIG. 5 is a block diagram illustrating the partitioning of apotential deposit amount of a depositor into multiple deposits issued bydifferent banks (Receiving Banks) to the subcustodian for Bank A. (BankA is the custodian for Bank A's customer). FIG. 5B illustrates thedeposits issued by Bank A to the subcustodian for Banks B-M. FIGS. 5Aand 5B illustrate how Bank A is “made whole”.

[0096]FIGS. 6 and 7 are block diagrams that illustrate the placementprocesses used by the IDPS 100 in accordance with the present invention.Placements of customers' funds through the IDPS will not necessarily bemade on a one-to-one basis. A Relationship Bank placing $1,000,000 ofthe funds of a Depositor through the IDPS with eleven Receiving Banks ona particular Settlement Date may, as a Receiving Bank, issue fourteendeposits with aggregate principal amounts of $1,000,000 to theDepositors of fourteen other Relationship Banks. There may be little orno overlap between the banks, acting as Receiving Banks, at which theRelationship Bank places funds and the banks, acting as RelationshipBanks, to which the Relationship Bank, acting as a Receiving Bank,issues deposits. (See also FIGS. 5A and 5B).

[0097] On any Placement Date, variances may exist between the interestrate a Relationship Bank is willing to pay to its Depositor on a depositand the interest rate other Relationship Banks are willing to pay totheir Depositors on deposits of equal maturity. These differences willbe reconciled by a one-time present value payment (“PVP”). The PVP iscalculated by the IDPS 100 by comparing the interest rate that theRelationship Bank has established with its Depositor (and that theDepositor is receiving on deposits issued by the Receiving Banks) withan “ERate” established by the IDPS 100 as described below. It could alsobe determined by other means. The ERate will be determined on eachPlacement Date based on the volume weighted average interest rate of thedeposits of each maturity placed through the IDPS 100 on that PlacementDate. A Relationship Bank will pay or receive a PVP based upon thedifference, if any, between the interest rate established with itsDepositor, and the ERate. The IDPS 100 may also permit deposit maturitymismatches between deposits issued by Relationship Banks and depositsissued by Receiving Banks that would be reconciled by proceduresdeveloped by the IDPS 100.

[0098] As set forth above, the IDPS 100 will first seek to match thefunds submitted for placement by one Relationship Bank with the fundssubmitted for placement by other Relationship Banks on the samePlacement Date. As a result, banks that are not submitting funds forplacement typically will not be able to receive funds submitted forplacement by a Relationship Bank. However, if on any Placement Date someor all of the funds a Relationship Bank has submitted for placementthrough the IDPS 100 are not matched with funds submitted for placementby other Relationship Banks, the unmatched funds may be placed inamounts not to exceed the established deposit insurance limit at banksthat are willing to accept deposits in excess of the funds they havesubmitted for placement through the IDPS 100 on that Placement Date orat banks that are willing to accept deposits and have not submitted anyfunds for placement through the IDPS 100 on that Placement Date (in thiscapacity each, a “Surplus Bank” 605). The IDPS 100 will have discretionon any Placement Date to select the banks that will receive funds asSurplus Bank 605 and may negotiate with the Surplus Bank 605 theinterest rate that the Surplus Bank 605 will pay for deposits.

[0099] Referring to FIG. 6, on each Placement Date that a bank agrees toaccept deposits as a Surplus Bank 605, it will act as a Receiving Bank.It will issue a deposit(s) to the subcustodian for Relationship Bank 610and will pay or receive a PVP 650 based on the difference between theinterest rate(s) the Relationship Bank 610 agreed to with its Depositor620 and the ERate, as determined by the IDPS 100 on the Placement Date.In addition, the Surplus Bank 605 may pay to the IDPS 100 a PVP 660representing any excess of the interest rate negotiated between theSurplus Bank 605 and the IDPS 100 over the applicable ERate or receivefrom the IDPS 100 a PVP 660 representing any excess of the applicableERate over the rate negotiated between them.

[0100] For each deposit a Surplus Bank agrees to establish for aRelationship Bank's Depositor, the IDPS 100 will request a bank withwhich the IDPS 100 has established a credit facility (“Lending Bank”600) to make a deposit at a Relationship Bank 615 in an amount equal tothe amount of the unmatched deposit placed with the Surplus Bank 605.The Relationship Bank 615 will establish a deposit for the Lending Bank600 with an interest rate equal to the applicable ERate. The LendingBank 600 may in its discretion place deposits in excess of theestablished deposit insurance limit with any Relationship Bank 610, 615.

[0101] All funds will be transferred and deposits established on theSettlement Date. In addition to a bank's agreement with the Sponsorpursuant to which the Sponsor will serve as the bank's subcustodian whenthe bank is acting as a Relationship Bank, each bank will also enterinto an agreement with the Sponsor to act (i) as the bank's issuingagent when it is a Receiving Bank and (ii) as settlement bank forpayments in connection with each deposit the bank has issued as aReceiving Bank and each deposit the bank is holding as custodian for itsDepositors as a Relationship Bank. Among other things, thesearrangements between the banks and the Sponsor permit deposits issued byReceiving Banks and funds placed by Relationship Banks through the IDPS100 to be netted on the Settlement Date.

[0102] The Processor, through the IDPS 100, will provide each bank thatis issuing a deposit and/or transferring funds on a Settlement Date withsettlement instructions and supporting reports setting forth (i) theprincipal amount, rate, maturity and payment terms of each deposit theProcessor will issue as issuing agent for the bank, (ii) the principalamount, rate, maturity and payment terms of each deposit to be issued tothe subcustodian of the bank, and (iii) the amount of funds, if any, tobe transferred to or received in bank's Settlement Account. In general,a bank transferring funds through the IDPS 100 on a Settlement Date (asRelationship Bank) will also issue deposits (as a Receiving Bank) inaggregate principal amounts equal to the funds it transfers and,therefore, will generally make or receive netted payments through itsSettlement Account reflecting placement fees and PVPs. In addition tothe netted amounts, a Surplus Bank 605 will receive the principal amountof the deposit(s) it issued to Depositors.

[0103] After the Settlement Date, the Issuing Agent for Bank 610 (asReceiving Bank), through the IDPS 100, will provide Bank 610 and thesubcustodian for Bank 615 with instructions and supporting reports withrespect to payments in connection with the deposits issued by Bank 610.The subcustodian for Bank 615, through the IDPS 100, will providereports to Bank 615 (as custodian) with respect to each deposit it isholding for a Depositor 625. Any payments owed on the depositsestablished by a bank (as a Receiving Bank) will be netted againstpayments owed on the deposits it is holding as custodian for itsdepositors and will be paid to or received in the bank's SettlementAccount. Requests for early withdrawal of the deposit will be madethrough the IDPS 100 by a Relationship Bank, and payments of withdrawalproceeds, minus any penalties, will be made by a Receiving Bank into itsSettlement Account and received by a Relationship Bank in its SettlementAccount.

[0104] Referring to FIG. 7, a Depositor that has funds in an amount thatexceeds the established deposit insurance limit, but wishes to have allof the funds eligible for established deposit insurance, will enter intoan agreement with a Relationship Bank (the “Depositor Agreement”) toplace potential deposit amounts with one or more banks in amounts not toexceed the established deposit insurance limit. The Relationship Bank705, 710, 715, 710 will agree to act as agent for Depositor 725, 730,735, 740, respectively, in placing the order to process the Depositor'spotential deposit amounts through the Interbank Deposit PlacementSystem. The Relationship Bank 705, 710, 715, 720 will agree to act asthe custodian for the Depositor 725, 730, 735, 740, respectively, inholding the deposits established by the Receiving Banks. TheRelationship Bank 705, 710, 715, 720 (as Receiving Bank) will issue adeposit to the subcustodian for each Relationship Bank from which adeposit portion has been allocated by the Interbank Deposit PlacementSystem. For example, Relationship Bank 710 is allocated funds from adepositor of Relationship Bank 720. In transaction 750, RelationshipBank 710, as Receiving Bank, will issue a deposit to the subcustodianfor Relationship Bank 720.

[0105] No physical documents evidencing the deposits are issued.Instead, the deposits are recorded on records of the Receiving Bank inthe name of the subcustodian for the Relationship Bank. The Processormaintains records of the deposits issued for each Depositor.

[0106] If a Depositor wishes to reinvest the funds from a maturingdeposit, the Depositor may so instruct the Relationship Bank and theRelationship Bank may resubmit the funds for placement through the IDPS100 as a new placement, in which case the funds may be deposited at theReceiving Bank that issued the maturing deposit or at a differentReceiving Bank.

[0107] All payments with respect to the deposits issued by ReceivingBanks will be made by Receiving Banks to Relationship Banks through theProcessor. The Relationship Bank, in turn, will credit the funds to theaccount of the Depositor or disburse them at the Depositor's direction.

[0108] In one embodiment, the IDPS 100 will generally not place depositswith a bank on any Placement Date on which the bank is not submittingdeposits of a Depositor for placement through the IDPS 100. However, onPlacement Dates when there is an excess of deposits to be placed throughthe IDPS 100 that cannot be placed in amounts under the establisheddeposit insurance limit at the banks submitting orders, the IDPS may, inits sole discretion, offer funds to Surplus Banks. The interest rate onthese unmatched deposits will be established by the IDPS 100 with eachSurplus Bank through a procedure established by the Processor. Althougha bank accepting such funds will be acting as a Surplus Bank, it willestablish deposits in the same manner as if it were a Receiving Bank,including paying or receiving a PVP to reconcile variances with theERate, and will have the same obligations with respect to the depositsas a Receiving Bank. The Surplus Bank may pay to the IDPS 100 any excessof the interest rate negotiated between the Surplus Bank and the IDPS100 over the applicable ERate and may receive from the IDPS 100 anyexcess of the applicable ERate over the rate negotiated between them.The Interbank Deposit Service enables each bank to continue setting itsown deposit terms (e.g., interest rates), which reflect the demand ofthe bank for funds and local market conditions. This mechanism ensuresthat low-cost funds passed through the IDPS 100 benefit the banks thatplaced customer funds through the IDPS 100.

[0109] In one embodiment, the Sponsor(s) associated with the InterbankDeposit Service may receive a fee from each bank for every transaction.In one embodiment, the fee is a specified number of basis points perdollar transferred through the IDPS 100. In another embodiment, the feeis lower for shorter term deposits (i.e., 4-week versus 52-weekdeposits).

[0110] In another embodiment, placement of funds only occurs betweendeposits having the same maturity, such that (for example) a banksubmitting customer funds to be placed in a 13-week CD to the IDPS 100only receives 13-week money in exchange. Alternatively, the InterbankDeposit Service may be implemented to permit and facilitate the transferof one maturity of deposit for another, or facilitate the transfer ofnon-maturity deposits. The Interbank Deposit Service may also implementuniform practices and procedures for handling early withdrawals.

[0111] The IDPS 100 may allocate funds among multiple banks pursuant toone or more algorithms. For example, the algorithm used for allocatingfunds is chosen to reach goals such as:

[0112] (1) Minimizing the total number of Deposit Mismatches/DepositPlacement Failures;

[0113] (2) Maximizing the percentage of Lending Bank deposits that arefully insured; and

[0114] (3) Reducing the average net present value payment made by eachbank.

[0115] In yet another embodiment, for a given number of banks, thealgorithm selects, within each maturity, the largest potential depositamounts and swaps the first tranche (in some amount up to theestablished deposit insurance limit) with a similar sized tranche from abank with the second largest potential deposit amount that earns thesame or similar interest rate, and then does the same with the banksubmitting the third largest potential deposit amount and same orsimilar interest rate, and so on. In such an embodiment, a “similar”interest rate might be an interest rate within a specified range of theinterest rate of the potential deposit amounts being allocated.

[0116] In yet another embodiment, the placement operation is conductedfor products having a given maturity as follows. First, all of theexcess customer funds from each Relationship Bank are submitted to theIDPS 100 and divided into tranches. Second, the average interest rateoffered by each bank on the funds submitted to the IDPS 100 isdetermined. In an embodiment, the interest rate so determined is aweighted average. Third, an ERate is selected based on thedeterminations in step two above. In one embodiment, the ERate is theaverage value determined in step two. Fourth, the IDPS 100 determines anordering for the banks based on the closeness of the interest rate ofeach bank to the ERate. Fifth, the largest deposit from the bank with aninterest rate closest to the ERate is allocated through the IDPS 100.The tranches that make up this deposit are swapped with tranches fromcustomers at banks whose interest rates are the furthest from the ERate.For example, the first tranche can be swapped with a tranche from adeposit in a bank whose interest rate is the highest above the ERate,and the second tranche can be swapped with a tranche from a deposit in abank whose interest rate is the lowest below the ERate, and so on.Sixth, the second largest deposit from the bank is allocated through theIDPS 100, and so on.

[0117] Other embodiments employ similar algorithms, except that thesealgorithms match tranches first with tranches from banks whose interestrates are closest to the ERate. Matching in this manner tends to reducethe amount of Rate Bridge payments that must be made through the IDPS100.

[0118] Other possible algorithms for the placement operation areapparent to those skilled in the art. In some placement operations, astandard tranche size is determined and used, and equal-sized tranchesare matched among banks. The standard tranche size is at or, more often,below the established deposit insurance limit, such that any depositformed from a tranche, with interest (if any), is fully insured. In suchembodiments, each excess deposit is divided into standard size tranches,and any remainder (“a remainder-tranche”) may be dealt with by matchingit with other, like-sized remainder-tranches, or as an unmatched depositpursuant to a mismatch resolution procedure. A goal may be to maximizethe size of the individual tranches, as well as minimizing the totalnumber of tranches.

[0119] The choice of which algorithms to use for the placement operationand/or for determining tranche size may depend on the particular depositterms of the excess deposits submitted to the IDPS 100 for allocation.The placement operation may require one-to-one placements where atranche from one bank is swapped with a like-sized tranche from anotherbank. In other embodiments, one-to-one placements are not necessary. Forexample, a first customer from a first bank receives a deposit from asecond bank, a second customer from the second bank receives a depositfrom a third bank, and a third customer from the third bank receives adeposit from the first bank. In this example, each bank has contributeda tranche to the IDPS 100, and each bank has issued a deposit to thecustomer of another bank.

[0120] The customer is responsible for ensuring that he or she is fullycovered by deposit insurance in all deposits (as is currently the casewith all other bank accounts) but the IDPS 100 attempts to ensure thatthe deposits transferred through the IDPS 100 are fully insured. Eachcustomer may be required or requested to identify, at the time he or sheplaces a deposit, information to the IDPS 100 regarding all banks inwhich it otherwise does not want to place deposits (which would includeall banks in which the customer maintains an account). In situationswhere the initial run of the algorithm places a deposit in a bank wherea particular customer has already insured deposits, the IDPS 100reallocates such new deposit to another bank.

[0121] At the initial implementation of the invention in a given market,the IDPS 100 may initiate the placement algorithm only one day per week(the Placement Date). In a vigorous market, more frequent, andultimately, multiple and/or continuous daily placements may take place.

[0122] Municipal deposits (a deposit of a state or local governmentalentity) can receive special treatment using the IDPS 100. For example,in the United States many states and municipalities require as a matterof local or state law or as a matter of preference or practice thattheir deposits be placed with financial institutions located in or doingbusiness within the state, county or municipality. Accordingly, the IDPS100 can direct such municipal funds to banks within the state orcommunity where they originated, either based on a preference specifiedby the customer, and/or automatically in accordance with applicable law.When the local market might be very small, the IDPS 100 may reserve theright to reject or limit orders to process potential deposit amounts ofmunicipalities until such time as it is able to find acceptable localplacements.

[0123] In the case of very large potential deposit amounts, the IDPS 100may utilize one of several possible mechanisms to ensure that all theinterest earned on such deposits remains fully covered by depositinsurance (for example, by allocating interest payments in depositsamong approved banks that did not receive portions of the potentialdeposit amount (i.e., principal)).

[0124] The present invention can further encompass various means forhandling deposit mismatches. Deposit mismatches (or “unmatcheddeposits”) can occur when a bank transfers deposits through the IDPS 100and there are not enough other eligible banks with which the IDPS 100can place funds. This is most likely to occur when a bank transfersthrough the IDPS 100 large potential deposit amount, whether from one ormany customers.

[0125] Mismatches are minimized by balancing the maximum size of thepotential deposit amounts that may be submitted with the number of banksand the frequency of the Placement Dates. In spite of such measures,mismatches can be expected to occur.

[0126] To ensure full deposit insurance coverage, a portion (e.g., $ƒ)of a $1,000,000 potential deposit amount that was mismatched in itsentirety is placed with a Surplus Bank in an amount that is no more thanthe established deposit insurance limit. The Surplus Bank is required toassume responsibility for issuing a deposit to the customer whodeposited the potential deposit amount at the Relationship Bank, as wellas paying or receiving interest through the IDPS 100 as an upfrontpresent value payment, or, alternatively, as a flow of funds over time.The remaining portions of the $1,000,000 mismatch are similarly placedwith other Surplus Banks.

[0127] In order to return to the Relationship Bank the same amount ofdeposits that the Relationship Bank placed into the IDPS 100, the IDPS100 arranges for a Lending Bank to deposit $1,000,000 or portion thereofinto the Relationship Bank in exchange for a deposit at the ERate. Thedeposit placed by the Lending Bank has the effect of providing a sourceof liquidity to the IDPS 100.

[0128] The Lending Bank and the IDPS 100 may have an understanding or acontract that governs how to split the total return or loss associatedwith a mismatch.

[0129] The IDPS 100 can also facilitate the secondary market sale ofdeposits by customers. Although as a result of operation of the IDPS 100a customer may hold multiple deposits in multiple banks, the customermay use the Relationship Bank to sell some or all of the deposits on asecondary market prior to their maturity. For example, a customer holds$1,000,000 in deposits that it obtained through the Interbank DepositPlacement System, e.g. ten deposits of $100,000 issued by ten differentbanks. For the purposes of this example, it is assumed either that theinterest does not accumulate in the account holding the deposit, or thatthe insurance limit is in excess of $100,000. The customer instructs theRelationship Bank to sell $200,000 of the deposits. The RelationshipBank takes the sell order and conveys the sell order to a PreferredBroker to sell two of the $100,000 deposits. The Preferred Brokermatches the customer to one or more buyers and consummates the sale. ThePreferred Broker may maintain a secondary market in such deposits so asto facilitate transactions. If so, and when necessary, the PreferredBroker may purchase the deposits itself, selling them to the highestbidder at a later date.

[0130] The Preferred Broker notifies the IDPS 100, which, as the agentfor the Relationship Bank (and indirectly for the customer), transfersthe ownership of $200,000 in deposits to the buyer(s). The Processor maymake the appropriate changes to the books and records it maintainsassociated with the deposits. The Preferred Broker becomes the agent ofthe buyer(s), with the IDPS 100 as the agent of Preferred Broker.

[0131] The Relationship Bank may collect a service fee. The PreferredBroker may receive a commission. The IDPS 100 may receive a transactionfee (which may be dependent on the size of the commission/spread of thePreferred Broker).

[0132] In accordance with the present invention, the IDPS 100 is anorder placement engine that executes an order placement process. Theorder placement process utilizes a sophisticated algorithm thatautomatically matches orders based on a pre-defined set of rules. Thisensures an order placement and execution utility that seeks to optimize,inter alia, three different variables:

[0133] (1) Minimize the total number of mismatches;

[0134] (2) Maximize the percentage of Lending Bank deposits that arefully insured; and

[0135] (3) Minimize net present value payments among banks.

[0136] Initially, the order placement engine is scheduled to processorders one or two times per week. As more banks participate in theInterbank Deposit Service and transaction volumes increase in thesystem, the matching schedule becomes more frequent, whereby the orderplacement engine could ultimately place orders many times on everybusiness day. The order placement engine executes each type of depositseparately. The type of deposits that are expected to be supported bythe IDPS 100 include (but are by no means limited to):

[0137] (1) 1-week deposit;

[0138] (2) 4-week deposit;

[0139] (3) 13-week deposit;

[0140] (4) 26-week deposit;

[0141] (5) 52-week deposit;

[0142] (6) 78-week deposit;

[0143] (7) 104-week deposit;

[0144] (8) 130-week deposit;

[0145] (9) 156-week deposit;

[0146] (10) 182week deposit;

[0147] (11) 208-week deposit;

[0148] (12) 234-week deposit;

[0149] (13) 260-week deposit;

[0150] (14) 286-week deposit;

[0151] (15) 312-week deposit;

[0152] (16) 338-week deposit;

[0153] (17) 364-week deposit;

[0154] (18) 390-week deposit;

[0155] (19) 416-week deposit;

[0156] (20) 442-week deposit;

[0157] (21) 468-week deposit;

[0158] (22) 494-week deposit;

[0159] (23) 520-week deposit; and

[0160] (24) Municipality deposits (with the same maturities as listedabove).

[0161] (25) Non-maturity deposits (e.g., non-time deposits)

[0162] The Order placement process involves the following steps:

[0163] (1) Pre-Processing;

[0164] (2) Adjusting the Optimization Scenario;

[0165] (3) Executing the Placement rules;

[0166] (4) Customer Review of Proposed Allocations;

[0167] (5) Resolution of Mismatches through Lending Bank deposits; and

[0168] (6) Finalize Placements.

[0169] The order placement and execution utility seeks to optimizeseveral different variables including:

[0170] (1) Minimizing the total number of mismatches, which in turn,reduces the amount of funds that are needed from the Lending Bank, whichthe Relationship Banks accept to make their transactions whole. Byreducing mismatches, the IDPS 100 minimizes its costs and simplifies itsrecord keeping. The IDPS 100 is able to minimize mismatches by:

[0171] (a) Setting bank and customer potential deposit amount maximums.By instituting limits on the potential deposit amounts submitted by eachbank overall and each individual bank customer, the IDPS 100 can managethe available liquidity in the system.

[0172] (b) Using a periodic placement cycle. As the business grows, theIDPS 100 adjusts the length of time between matching executions.Initially, the IDPS 100 may potentially place orders less than daily(e.g., once or twice a week) in order to increase the number of ordersin the system, thereby decreasing the number of mismatches. In suchinstances, banks and their customers are informed of the Placement Dateand no funds are transferred until the Settlement Date associated withthat Placement Date.

[0173] (2) Minimize net present value payments. The matching of depositsthrough the IDPS 100 is achieved through a mathematical algorithm thatplaces funds with banks whose total interest payments are generallyclosest in value. This minimizes the net amount of present valuepayments (PVPs) that are made to or received by each Relationship Bankand Receiving Bank.

[0174] (3) Direct Lending Bank deposit placements to banks having thegreatest deposit limits remaining. The Lending Bank may establishdeposit limits for deposits established at each bank. In order tominimize costs and to afford greatest flexibility to the IDPS, the IDPSattempts to place Lending Bank funds with banks that have the largestdeposit limits at the time of placement.

[0175] (4) Maximize the percentage of the Lending Bank deposits that arefully insured. In order to minimize costs to the IDPS 100 and risk tothe Lending Bank, the IDPS 100 attempts to maximize the amount of anyLending Bank deposits used to cover mismatches that are fully insured.When a mismatch occurs, the Lending Bank provides funds to the ReceivingBank. In return for the funds from the Lending Bank, the Receiving Bankestablishes a deposit for the full amount of such funds.

[0176] In one embodiment, an algorithm in Processor 412 of IDPS 410 isexecuted to break-down customer orders to process potential depositamounts into insured deposit portions (tranches). Daily within eachgroup, a maximum tranche size is calculated for each product group.Standard tranche sizes are designated based on the deposit terms. Thetranche size is set such that the total deposit amount does not exceedthe established deposit insurance limit during the term of the product,even if interest is compounded and held to maturity. All tranches areless than or equal to the calculated tranche size for that specificproduct group. Actual tranche sizes are determined daily during theexecution of the matching rules and may take into account at least onerollover period. If an order to process a potential deposit amount issmaller than a system defined minimum tranche size, the order isprocessed as an exception. Orders are stored in tranches in theProcessor. The placement engine is run for each product term separately.

[0177] Throughout the day, Relationship Banks submit orders to the IDPS100 where they are stored in the Processor until the order placementoptimization is executed. Prior to the placement and filling ofInterbank Deposit Service orders, processing occurs to organize andcategorize the orders placed by individual banks. This optimizes theorder placement process.

[0178] Orders are organized/categorized into the following groups:

[0179] (1) Product Type: Certificate of Deposits and MunicipalCertificate of Deposits.

[0180] (2) Product Terms: 1 week, 4 weeks, 13 weeks, 26 weeks, 52 weeks,or the like.

[0181] An optimization scenario is selected and the order matchoptimization is executed so as to optimize in some form the followingthree variables.

[0182] (1) Minimize the total number of Deposit Mismatches/DepositPlacement Failures;

[0183] (2) Maximize the percentage of Lending Bank deposits that arefully insured; and

[0184] (3) Reduce net present value payments to banks as a whole.

[0185] The IDPS 100 may prioritize these variables differently based onthe make-up of orders in the system and the configuration of banksplacing orders in the placement cycle. For example, if most Lending Bankdeposits could be fully insured, then the IDPS 100 may want to placemore emphasis on minimizing present value payments rather than onminimizing the number of mismatches.

[0186] Depending on how the optimization scenario is adjusted toprioritize the three variables, orders are placed based on:

[0187] (1) Product type (Municipal CDs generally must be placed firstbecause of the additional geographical restrictions on their placement);

[0188] (2) Potential deposit amount (larger potential deposit amountsare generally placed first to minimize Deposit Mismatches/DepositPlacement Failures);

[0189] (3) Interest Rate (orders with similar interest rates are matchedto minimize present value payments);

[0190] (4) Credit-worthiness of bank (orders from least credit-worthyinstitutions are placed first to reduce the likelihood that a mismatchwill occur at such institutions which will, in turn, minimize risk tothe IDPS 100 and Lending Bank); and

[0191] (5) The ability of a Relationship Bank to offer the Lending Banka fully insured deposit (banks who have already issued deposits to theLending Bank may be allocated deposits first to maximize the number offully insured Lending Bank deposits).

[0192] The IDPS 100 attempts not to place deposits in a bank where acustomer already has deposits. In addition to utilizing a customervalidation process, the IDPS 100 places a preference on placing orderswith banks that belong to different geographical territories. Banks aregrouped by geographic territories. Each state is grouped into ageographic region of the United States. Logic is included to select anorder from:

[0193] (1) a different state within the geographic region of an order;

[0194] (2) a different geographic region than the state that the orderoriginated from;

[0195] (3) a different county within the same state; and

[0196] (4) a same state as the selected order (often necessary formunicipal deposits).

[0197]FIGS. 8A and 8B show a series of steps implemented in accordancewith the present invention. The steps set forth in 8A and 8B may occurin the sequence set forth therein, or in a difference sequence.Potential deposit amounts that exceed an established deposit insurancelimit are processed by the Processor so that the potential depositamounts are fully insured. The potential deposit amounts are allocatedby the Processor to banks. The Processor, in turn, establishes on behalfof the banks multiple deposits for Depositors of the potential depositamounts. Each deposit that is a time deposit has a predeterminedmaturity. In step 805, a Settlement Account is established for eachbank. In step 810, the Processor receives multiple orders to process thepotential deposit amounts. In step 815, a determination is made if thepresent day corresponds to a predetermined Placement Date associatedwith the orders. In step 820, based on the orders, the Processor sortsby maturity the deposits to be established. In step 825, each of thepotential deposit amounts is partitioned into multiple deposits to beestablished. Each such amount does not exceed the established depositinsurance limit. In step 830, the Processor determines an ERate based ona volume weighted average rate of the orders the Processor receives. TheProcessor sorts the maturities of the deposits to be established basedon the orders. In step 835, the Processor assigns each of the depositportions to a specific one of the banks in response to each order, andcreates a proposed list of the banks to which the deposit portions areto be allocated. In step 840, the proposed list is available to arecipient (e.g., the depositor that originated the potential depositamount order) for review. The recipient is offered the option ofmodifying the proposed list during an established “change” time window.In steps 845, 850, 855, the Processor waits until the “change” timewindow expires. If the recipient desires to make changes during the timewindow, those changes are implemented (step 855). After the “change”time window expires, the Processor compares an interest rate offered byeach specific bank for a particular deposit maturity to an ERateestablished by the Processor for the particular maturity (step 860). Instep 865, the Processor calculates the amount of a payment to compensatefor differences between the interest rate specified by the banks and theERate established by the Processor for the particular maturity. In step870, for each deposit portion, a deposit is established on behalf of theReceiving Bank to which such deposit portion was assigned by theProcessor. In step 870, on the settlement date the Processor credits anddebits the Settlement Accounts, for appropriate banks to reflectpayments and fees in respect of deposits established at a time after thePlacement Date.

[0198] While several of the aforementioned examples refer to U.S.dollars and the current U.S. Federal Deposit Insurance Corporation(FDIC) $100,000 insurance limit, with appropriate substitutions theseexamples may be used to illustrate the implementation of the inventionin systems using currencies other than dollars, with different insurancelimits and with different institutions, and with different countries'insurance programs.

[0199] Furthermore, although certificate of deposits (CDs) have beendisclosed as being used as deposits, other types of deposits may besupported by the placement engine.

[0200] The present invention may be implemented with any combination ofhardware and software. If implemented as a computer-implementedapparatus, the present invention is implemented using means forperforming all of the steps and functions described above.

[0201] The present invention may be implemented with any combination ofhardware and software. The present invention can be included in anarticle of manufacture (e.g., one or more computer program products)having, for instance, computer useable media. The media has embodiedtherein, for instance, computer readable program code means forproviding and facilitating the mechanisms of the present invention. Thearticle of manufacture can be included as part of a computer system orsold separately.

[0202] It will be appreciated by those skilled in the art that changescould be made to the embodiments described above without departing fromthe broad inventive concept thereof. It is understood, therefore, thatthis invention is not limited to the particular embodiments disclosed,but it is intended to cover modifications within the spirit and scope ofthe present invention.

What is claimed is:
 1. A computer-implemented method of processing fundsin amounts that are subject to an established deposit insurance limit sothat the funds are eligible to be fully insured, the funds beingassigned to a processor that creates a plurality of deposits on behalfof a plurality of banks for depositors of the funds, each deposit havinga predetermined maturity, the method comprising: (a) the processorreceiving a plurality of orders to process the funds; (b) the processorpartitioning each of the fund amounts into a plurality of depositportions, each deposit portion not exceeding the established depositinsurance limit; and (c) the processor allocating each of the depositportions to a specific one of the banks, wherein, through the processor,a deposit is established at the bank to which the deposit portion wasallocated.
 2. The method of claim 1 wherein each bank specifies adeposit interest rate, the method further comprising: (d) the processorcomparing the specified deposit interest rate to an interest ratedetermined by the processor; and (e) the processor calculating theamount of a payment to compensate for differences between the specifieddeposit interest rate and the interest rate determined by the processor.3. The method of claim 2 wherein the amount of the payment is determinedbased on (i) the interest rate determined by the processor; (ii) thespecified deposit interest rate, (iii) the amount of the specificdeposit portion, (iv) a number of times during a predetermined timeperiod that earnings on the specific deposit portion are to becompounded, (v) a number of times that the predetermined time period isto occur, (vi) a payout frequency of earnings on the specific depositportion, and (vii) an established discount rate.
 4. The method of claim3 wherein the established discount rate is the applicable LondonInterbank Offering Rate (LIBOR) or a derivative thereof, or some otherrate.
 5. The method of claim 2 wherein the amount of each specificdeposit portion is within the established deposit insurance limit, themethod further comprising: (f) the processor forwarding the payment tothe depositor or the depositor's bank or crediting the payment to anaccount thereof each time that interest earned on the associated depositis compounded or accrued, so that the amount of the specific depositdoes not exceed the established insurance limit.
 6. The method of claim2 wherein the interest rate determined by the processor is based on avolume weighted average rate of the deposit portions used to establishdeposits having a particular maturity.
 7. The method of claim 1 whereinthe deposit is a certificate of deposit (CD).
 8. The method of claim 7wherein the CD is a Municipal CD.
 9. The method of claim 1 wherein theprocessor prioritizes the orders in step (a) based on the type ofdeposits established by the banks.
 10. The method of claim 1 wherein theprocessor prioritizes the orders in step (a) based on the size of eachof the fund amounts.
 11. The method of claim 1 wherein the processorprioritizes the orders in step (a) based on earning rates specified bythe banks.
 12. The method of claim 1 wherein the processor prioritizesthe orders in step (a) based on the geographical location of the banks.13. The method of claim 1 wherein the processor prioritizes the ordersin step (a) based on preferences indicated by the depositors.
 14. Themethod of claim 1 wherein the processor prioritizes the orders in step(a) based on preferences indicated by the banks.
 15. The method of claim1 wherein the processor prioritizes the orders in step (a) based on theability of the banks to offer a fully insured deposit in return forfunds placed by a Lending Bank.
 16. The method of claim 1 wherein theprocessor prioritizes the orders in step (a) based on the availabilityof funds from a Lending Bank.
 17. The method of claim 16 wherein theprocessor prioritizes the orders in step (a) based on at least one ofthe asset size and the credit rating of the assigned banks.
 18. Themethod of claim 1 wherein the established deposit insurance limit is inaccordance with a deposit insurance program in the United States. 19.The method of claim 1 wherein the established deposit insurance limit isin accordance with a deposit insurance program operated by the U.S.Federal Deposit Insurance Corporation (FDIC).
 20. The method of claim 1wherein the established deposit insurance limit is in accordance with adeposit insurance program operated by the National Credit UnionAdministration (NCUA).
 21. The method of claim 1 wherein the establisheddeposit insurance limit is in accordance with the deposit insuranceprogram of a foreign jurisdiction.
 22. The method of claim 1 wherein thebanks are unaffiliated with one another.
 23. The method of claim 1wherein each amount of funds is less than or equal to the establisheddeposit insurance limit.
 24. The method of claim 1 wherein each amountof funds exceeds the established deposit insurance limit.
 25. Acomputer-implemented method of processing funds in amounts that aresubject to an established deposit insurance limit so that the funds areeligible to be fully insured, the funds being assigned to a processorthat creates a plurality of deposits on behalf of a plurality of banksfor depositors of the funds, the method comprising: (a) establishing asettlement account for each of the banks; (b) the processor receiving aplurality of orders to process the funds, each order including anindication of the maturity and interest rate of the deposits to beestablished based on a specific one of the fund amounts; (c) theprocessor sorting by maturity the deposits to be established based onthe orders; (d) the processor partitioning each of the fund amounts intoa plurality of deposit portions, each deposit portion not exceeding theestablished deposit insurance limit; and (e) the processor allocatingeach of the deposit portions to a specific one of the banks, whereineach specific deposit portion is used to establish a deposit for one ofthe banks that the deposit portion was allocated to.
 26. The method ofclaim 25 further comprising: (f) comparing the interest rate specifiedor paid by each specific bank for a particular deposit maturity to aninterest rate established by the processor for the particular maturity;and (g) calculating payments to be credited to or debited from thesettlement account of each of the banks based on differences between theinterest rates specified or paid by the respective banks and theinterest rate established by the processor for the particular maturity.27. The method of claim 26 further comprising: (h) in response to eachorder, making available to a recipient a proposed list of banks to whichthe deposit portions are allocated, and offering the recipient theoption of modifying the proposed list during an established time window;and (i) after the time window expires, the processor establishing adeposit for the recipient on behalf of the bank on the list to which thespecific deposit portion was allocated by the processor.
 28. The methodof claim 27 wherein the recipient is at least one of a representative ofthe bank that placed the order and the depositor associated with theorder.
 29. The method of claim 25 wherein the established depositinsurance limit is in accordance with a deposit insurance program in theUnited States.
 30. The method of claim 25 wherein the establisheddeposit insurance limit is in accordance with a deposit insuranceprogram operated by the U.S. Federal Deposit Insurance Corporation(FDIC).
 31. The method of claim 25 wherein the established depositinsurance limit is in accordance with a deposit insurance programoperated by the National Credit Union Administration (NCUA).
 32. Themethod of claim 25 wherein the established deposit insurance limit is inaccordance with the deposit insurance program of a foreign jurisdiction.33. The method of claim 25 wherein the banks are unaffiliated with oneanother.
 34. The method of claim 25 wherein each amount of funds is lessthan or equal to the established deposit insurance limit.
 35. The methodof claim 25 wherein each amount of funds exceeds the established depositinsurance limit.
 36. A computer-implemented method of processing fundsin amounts that are subject to an established deposit insurance limit sothat the funds are eligible to be fully insured, the funds beingassigned to a processor that creates a plurality of deposits on behalfof a plurality of banks for depositors of the funds, the methodcomprising: (a) the processor partitioning each of the fund amounts intoa plurality of deposit portions, each deposit portion not exceeding theestablished deposit insurance limit; (b) the processor allocating eachof the deposit portions to a specific one of the banks; (c) presentingto a recipient a proposed list of banks to which the deposit portionsare allocated, and offering the recipient the option of modifying theproposed list during an established time window; and (d) after the timewindow expires, the processor establishing a deposit for the recipienton behalf of the bank on the list to which the specific deposit portionwas allocated by the processor.
 37. The method of claim 36 wherein therecipient is at least one of a representative of the bank that placedone of the fund amounts and the depositor associated with the one fundamount.